In this paper, we focus on two-factor lattices for general diffusion processes with state-dependent volatilities. Although it is common knowledge that branching probabilities must be between zero and one in a lattice, few methods can guarantee lattice feasibility, referring to the property that...

In this essay, we empirically test the Constant-Elasticity-of-Variance (CEV) option pricing model by Cox (1975, 1996 [note: A revised version of the paper was published by the Journal of Portfolio Management (1996).]) and Cox and Ross (1976), and compare the performances of the CEV and...